WITH JUST OVER a month left for Union Budget 2025-26, Prime Minister Narendra Modi told economists Tuesday that deeper reforms were required for the economy to grow faster.
In a meeting organised by the Niti Aayog, the Prime Minister stressed on the need to undertake new and bold reforms and invited suggestions from the economists. The meeting comes amid slowing of economic growth, tepid urban consumption, persisting external volatility, and the threat of high tariffs further impeding world trade and stoking global inflation.
India’s GDP rose by 5.4% in July-September, the lowest rate in seven quarters, as weaker expansions in manufacturing and consumption hurt the economy.
Sources said the ideas put forward by the economists ranged from land and labour reforms to states taking the lead in easing regulations that are a constraining factor for businesses, sources said. Economists also spoke on the pace of fiscal consolidation, the need to lower personal income-tax rates, and tax incentives for companies employing women.
If there was one fiscal policy tool that dominated the discussion and engaged most, it was taxation — as many as 19 economists and senior government officials spoke on it — about how India is a heavily taxed country and how it needs to lower both direct and indirect taxes. For this, suggestions made by a few economists included lowering personal income-tax rates, and one economist even provided calculations about how a certain percent cut in income-tax rates could boost consumption by a definite percent.
“It was discussed that India is a heavily taxed country and how some tax rationalisation needs to be done for both direct and indirect taxes. It was suggested that GST rates could also be reduced apart from a tweak in personal income tax rates to boost consumption. Some corporate tax incentives were also suggested for entities, especially small and medium enterprises, employing women. For example, a 1 per cent corporate tax incentive could be given to SMEs employing a certain percentage of women in their total share of workers,” a person who attended the meeting said.
Another suggestion was about a jobs-linked incentive scheme, where companies get a payback in the form of a corporate tax concession in case they hire more people, the person said.
Modi said ‘Viksit Bharat’ can be achieved through a fundamental change in mindset which is focused towards making India developed by 2047. A statement issued by the Prime Minister’s Office said the meeting was held on the theme “Maintaining India’s growth momentum at a time of Global uncertainty”. “He emphasised that Viksit Bharat can be achieved through a fundamental change in mindset which is focused towards making India developed by 2047,” the statement said.
“Participants shared their views on several significant issues including navigating challenges posed by global economic uncertainties and geopolitical tensions, strategies to enhance employment particularly among youth and create sustainable job opportunities across sectors, strategies to align education and training programs with the evolving needs of the job market, enhancing agricultural productivity and creating sustainable rural employment opportunities, attracting private investment and mobilizing public funds for infrastructure projects to boost economic growth and create jobs and promoting financial inclusion and boosting exports and attracting foreign investment,” it said.
On the fiscal front, while some economists underlined the need to stick to the fiscal consolidation roadmap, there were others who suggested a minimal fiscal expansion. “Some suggested a fiscal deficit of 4.5 per cent (of the GDP), while the other view was to go in for a fiscal deficit of 4.6 per cent,” another person in the know said. The government has budgeted a fiscal deficit target of 4.9 per cent of the GDP for the ongoing financial year 2024-25 and aims to bring it lower than 4.5 per cent of GDP by financial year 2025-26.
The government should continue with its focus on capital expenditure, economists are learnt to have conveyed to the Prime Minister. This would also include focus on infrastructure projects including river interlinking.
Agriculture and climate change were discussed extensively in the meeting, with key recommendations made for crop rotation and diversification, water conservation and the need to plan against depletion of water tables and ensuring adequate availability of drinking water. “The interlinking of perennial rivers with other rivers to create adequate supply in water reservoirs was discussed in the meeting. This would require additional funds at state level and may need more extensive Centre-state discussions,” one of the persons cited above said.
